A Stock Market Watch List
Is a list of good stocks to buy that are currently too expensive.
A stock market watch list is a list of shares that are good stocks to buy but which may be currently over-priced by the market.
What is a good stock? One with a high return on equity and low debt and with good growth prospects.
A good stock will also tick most of the boxes in my investing template for value investing.
By over-priced I mean that the current price of each of the stocks on the watch list exceeds the intrinsic value that I have calculated by one or more means outlined here.
Using a stock market watch list is how I control the amount of information when making investment decisions.
I hold an additional ten to twenty companies in my watch list of best businesses on top of the ten to twenty that are already in my portfolio.
Why Have a Stock Watch List?
There are several compelling reasons why you should consider having a watch list ...
- you are able to follow these strong stocks and buy them when they at or below fair value
- it is far easier to keep a watch list and check it regularly than to look for new stocks every time you check the market to see what might be a good buy
- keeping an eye on the stocks in your watch list will enable you to keep up with any news on the stocks and any company announcements about them.
Of course if you obtain negative news about a stock on your watch list, this could be a signal to remove it from the list.
Choosing Stocks For My Watch List
How does a company get into my watch list?
It does so on the basis of my buying strategy, that firstly requires me to dismiss particular types of stocks.
These generally include small speculative companies, highly regulated companies, companies requiring large expenditures on plant and equipment to remain competitive, most initial public offerings (IPOs) and single resource companies.
Having reduced the buying universe, remaining companies that tick most of the boxes in my investing template are ones that will most likely make it onto my stock market watch list.
Choosing Stocks For My Portfolio
A company in the watch list will make it into my portfolio when a significant margin of safety arises for that stock. That is, when the price of the stock is significantly lower (10 - 25% lower) than my estimate of its intrinsic or true value.
Since the stock has already made it onto the watch list, it has already been deemed worthy of a place in the portfolio. It simply becomes a question as to whether I can buy it at an appropriate price.
Keeping a watch list is particularly important when value investing as it takes time to identify suitable stocks for inclusion in the list. Stock market screeners certainly help in this regard.
Keeping the watch list up-to-date will mean that when the next downturn occurs, you will be ready to pounce onto those good stocks on your watch list that have become 'ON SALE'!
An investing template
- helps me to determine if a stock ticks most of the boxes!
My buying strategy - firstly eliminates certain classes of stocks. Check out which ones!
A margin of safety - is a fundamental concept in value investing. Find out here how to achieve a margin of safety.
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